“Stay the course. When thwarted try again; harder; smarter. Persevere relentlessly.” – John Wooden
Dive into the recent market events caused by the carry trade and learn why it’s essential to stay focused on your long-term financial goals. Whether it’s through tax planning, estate planning, or simply ensuring your financial plans are up-to-date, these strategies will help you navigate through market volatility with confidence.
Ready to review your financial plan or discuss how these strategies can help you stay on track? Reach out to us today to schedule a consultation. We’re here to ensure your financial future is as secure and prosperous as possible.
Transcript
Hi there! Mike Brady with Generosity Wealth Management, a comprehensive, full-service financial services firm headquartered here in Boulder, Colorado. I’m usually in a button-down shirt and a blue blazer, but you know what? It’s hot outside here in Boulder. No clients are going to see me today so I figured what the heck. We’ll keep it our little secret that I didn’t dress up today.
I wanted to first explain what a carry trade is, to which many pundits, including me, and analysts like me, attribute some of the sharp decline, especially in Japan, over that Friday and that Monday when the market really tanked. I’m recording this on Wednesday, August 7, so I’m not quite sure how it all has played out, but it’s starting to recover. Whether that recovery has continued by the time you watch this video, we’ll have to see.
But let’s get back to what the carry trade is. The carry trade is any kind of arbitrage. Frankly, from a concept point of view, if you have a mortgage on your house at 3% and you invest money in investments hoping to make 6%, let’s say, that’s a 3% carry trade because you’re borrowing low and you’re investing high. Well, currencies are no different. For years since the late 1990s Japan has had very low borrowing rates, interest rates, near zero. And so investors would borrow in Japan, buy the currency in another country and then invest in some kind of a fixed instrument in that particular country. So, it’s really the difference between the two.
With the United States now talking about reducing rates and then Japan increasing rates, they are getting squeezed. Those people do speculative trade, such as short-term carry trade with currencies. That’s a lot of what happened over that Friday, the Monday, and the huge decline. It’s kind of the unraveling of that particular trade. Once that’s unraveled, we get back to business as usual. I think one of the things to keep in mind is that we’re investors, not traders, at least my clients are. We’re investors with time horizons that are not days, weeks, or months, but they’re years, and that could be two years, three years, five or five plus years. And so these blips happen. I mean, the most recent one of this magnitude happened in March 2022 – I think it was March. Don’t hold me to that, but it was in the year 2022, and that was two years ago. Things have gone up quite nicely since then. In 2023, the unmanaged stock market indexes were positive, and so far in 2024, the unmanaged indexes are positive as well. So, let’s not extrapolate a short-term event into long-term action or even decisions.
What we can do as investors is keep our eye on the things that probably have the biggest impact on reaching our goals and accomplishing our plan to get there. Of course, it’s taxes. Frankly, I think that’s one of the best things someone can do that’s identifiable and look for ways to lower your taxes. It’s most people’s single biggest expense. To that end, I have a great new software called FB Alpha, which you, of course, should talk with me about so we can do some tax analysis, and you can have a good conversation with your CPA and maybe identify some areas to talk with your CPA about.
The second thing is making sure you have that plan. I have new software, RightCapital, which I love. I’ve already moved many clients and met with them about that new software. If you feel that now is the time to update things, give me a call or an email.
The third thing is estate planning. So many people don’t have estate planning. That is, of course, what happens with all your assets when you pass away and while you’re living. Who makes medical decisions for you, end-of-life decisions, and financial powers of attorney? So, with all that package, give me a call because I have new planning for that as well and a way to help you get that done with an attorney or with even a service that I have that I’m able to open up a portal, an account for you so that you can do some of that stuff online.
Anyway, those are the things I believe we should be focused on. It’s our duration, it’s our long-term investments, and, of course, it’s our taxes, our planning, and our estate planning. Those are the things that are probably going to have, in my opinion, the biggest impact on your life, not the impact of a carry trade or the impact of a couple of days of decline.
Michael Brady, Generosity Wealth Management, 303-747-6455.
One thing before I leave, I did want to remind you if your situation has changed and I’m not aware of it, your financial situation, your family situation – I’m in constant contact with my existing clients, but we want to make sure that our beneficiaries on IRAs, retirement accounts, life insurance, all of those things are up to date. If you have any concerns or you don’t know what they are, give me an email, give me a call and we’ll get that for you. That is absolutely essential to continually ensure that the beneficiaries are what you want. The reason why I say that is I had a situation in the last couple of weeks where the beneficiaries of a client were inconsistent with what their desire was, and fortunately, we caught it, of course, before there was any problem. I want you to be well taken care of, too. Whether you’re my client or you’re not, I still care about you and the control and the desire that you have to have your money go to who you want when you pass on.
Mike Brady, Generosity Wealth Management, 303-747-6455. Thanks.